Operational Risk and the Management of Operational Risks (Operations & Operational Risk Management)

Summary

This video offers an in-depth look at operational risk, its types, and the importance of managing it. It covers the definition, impacts, and the comprehensive process of operational risk management, including risk identification, assessment, mitigation, and monitoring. The video also highlights the benefits of effective risk management and a seven-step approach to mitigate risks, emphasizing the necessity of a robust strategy to protect a business's reputation and financial stability.

Takeaways

• 📈 Operational risk refers to the potential for business operations to fail due to internal inefficiencies, human error, or external events.
• 🏦 The Basel Committee on Banking Supervision defines operational risk as the risk of loss from inadequate or failed internal processes, people, systems, or external events.
• 🌐 Operational risk encompasses business continuity, crisis management, process systems, and IT risks, among others.
• 🔍 A sophisticated approach to operational risk management can enhance a business's ability to thrive and grow.
• 🚨 Operational risk can include legal, human capital, physical assets, and bottom-line business risks, but typically excludes strategic and reputational risks.
• 🛠️ Operational risk management is a continuous process involving risk assessment, control implementation, and monitoring.
• 👥 Every individual in an organization plays a role in operational risk management, contributing to a strong safety culture.
• 💡 Integrated Risk Management (IRM) uses technology to predict significant risks and connect different risk mitigation areas.
• 📊 The benefits of operational risk management include improved business reliability, risk management effectiveness, and decision-making.
• 🔑 The operational risk management process consists of risk identification, assessment, mitigation, and monitoring and reporting.

Q & A

What is operational risk?

Operational risk is the possibility of business operations failing due to inefficiencies or breakdowns in a firm's internal processes, people, and systems, human error, and external events such as regulatory changes.

What are the common sources of operational risk?

Common sources of operational risk include internal process failures or gaps, human error, system failures, and external risks imposed by customers, suppliers, natural disasters, regulatory changes, or geopolitical shifts.

How does operational risk relate to a company's strategic objectives?

Operational risk impacts the firm's strategic objectives by potentially causing damage to the business, including loss, regulatory overhead, and reputational damage. Effective management of operational risk helps protect these objectives.

What are the types of operational risk mentioned in the script?

The types of operational risk include fraud, other criminal activity, workplace policies and safety, products and business practice, physical assets, business disruption, and process management.

What are the impacts of operational risk if not managed properly?

If operational risks materialize and are not managed properly, they may cause significant damage to a business, including outright loss, increased regulatory overhead, and reputational damage.

What is the role of corporate leaders in operational risk management?

Corporate leaders should make safety part of their value structure by initiating and driving a safety culture throughout the organization.

What is integrated risk management (IRM)?

Integrated risk management is a concept where software and technology work together to help organizations predict where their most significant risks might be while connecting different risk mitigation areas through cloud technology.

What are the benefits of operational risk management?

Benefits of operational risk management include improved reliability of business operations, strengthened decision-making processes regarding risk management, reduction in losses caused by poorly identified risks, early identification of unlawful activities, lower compliance costs, and reduced potential damage from future risks.

What are the key steps in the operational risk management process?

The key steps in the operational risk management process are risk identification, risk assessment, risk measurement, risk mitigation, and monitoring and reporting.

How can a company reduce its operational risk?

A company can reduce its operational risk by developing a sound operational risk management strategy, which includes understanding the nature of the business and associated risks, implementing relevant controls, and continuously assessing and managing those risks.

What is the seven-step approach to mitigate operational risk?

The seven-step approach to mitigate operational risk includes task segregation, curtailing complexities in business processes, reinforcing organizational ethics, putting the right people in the right jobs, regular monitoring and evaluation, periodic risk assessment, and learning from past risk incidents.

Outlines

00:00

🔍 Introduction to Operational Risk Management

This paragraph introduces the concept of operational risk, which is the potential for business operations to fail due to internal inefficiencies or breakdowns, human error, or external events. It emphasizes the importance of managing operational risks and outlines the structure of the video, which includes discussing the meaning, types, impacts, and management of operational risks. The Basel Committee on Banking Supervision's definition of operational risk is provided, highlighting the need for comprehensive business risk assessment. The paragraph concludes by stressing that no business is immune to operational risk and that a sophisticated approach to risk management is crucial for business growth.

05:01

📈 Understanding and Impacts of Operational Risk

This section delves into the types of operational risk and their potential impacts on a business. It categorizes operational risks into fraud, criminal activities, workplace policies and safety, product and business practices, physical assets, maintenance, business disruption, and process management. The impacts of operational risk are also discussed, ranging from financial loss and regulatory overhead to reputational damage. The paragraph underscores the importance of not underestimating operational risks and the benefits of developing a robust operational risk management strategy.

10:02

🛠️ Operational Risk Management Strategy

The paragraph outlines the operational risk management process, which includes understanding the nature of the business and its risks, and adopting different levels of risk management. It introduces the concept of Integrated Risk Management (IRM), which uses technology to predict and mitigate risks. The paragraph also discusses the roles of various stakeholders in an organization in managing operational risks and the benefits of effective operational risk management, such as improved reliability, decision-making, and reduced losses and compliance costs.

15:03

📋 Operational Risk Management Principles and Process

This section explains the four essential principles of operational risk management and outlines the five stages of the risk management process: identification, assessment, measurement, mitigation, and monitoring and reporting. It emphasizes the importance of making risk decisions at the appropriate level, integrating risk management into planning, and the continuous nature of the process. The paragraph provides a detailed look at each stage, from identifying risks to implementing controls and monitoring their effectiveness.

20:05

🔄 Implementing Risk Control and Monitoring

The paragraph discusses the implementation of risk control measures once mitigation strategies have been decided upon. It highlights the importance of documenting control rationale, objectives, and activities. The paragraph also emphasizes the need for regular monitoring and review of controls to ensure their effectiveness. It stresses the role of workers and managers at all levels in maintaining controls and the importance of an ongoing approach to risk assessment.

25:06

🔄 Seven-Step Approach to Mitigate Operational Risk

This section introduces a seven-step approach to mitigate operational risk, which includes task segregation, reducing business process complexities, reinforcing organizational ethics, assigning the right people to the right jobs, regular monitoring and evaluation, periodic risk assessment, and learning from past incidents. The paragraph explains how each step contributes to a robust operational risk management framework and the importance of adopting a proactive approach to risk management.

🏁 Conclusion on Operational Risk Management

The final paragraph concludes the discussion on operational risk and its management. It reiterates the significance of operational risk and the potential for significant damage to a business if not managed effectively. The paragraph summarizes the importance of a continual process of assessing risks and implementing controls, and encourages viewers to engage with the content by commenting, liking, and sharing the video. It also prompts new viewers to subscribe to the channel for updates on new video uploads.

Keywords

💡Operational Risk

Operational risk refers to the potential for business operations to fail due to inefficiencies, breakdowns in internal processes, people, systems, human error, or external events. It is a core concept in the video, which aims to educate viewers on how to manage such risks. For example, the script mentions that operational risk includes legal risks, risks to human capital, physical assets, and the bottom line of the business.

💡Risk Management

Risk management is the process of identifying, assessing, and prioritizing risks to an organization's capital and earnings. The video discusses various strategies for managing operational risks effectively. It is highlighted as a crucial practice for businesses to thrive and grow, emphasizing that no business is immune to operational risk.

💡Internal Processes

Internal processes are the systematic methods by which a company achieves its objectives. The script explains that operational risk can arise from inadequacies or failures in these processes. Effective operational risk management involves assessing and improving these processes to prevent potential losses.

💡Human Error

Human error is a common source of operational risk, as it can lead to mistakes or missed opportunities within a business. The video underscores the importance of managing this risk through training, clear communication, and robust processes to minimize the potential for human mistakes.

💡External Events

External events are occurrences outside of a company's control that can impact its operations, such as natural disasters or regulatory changes. The video mentions these as sources of operational risk, emphasizing the need for businesses to be prepared for such unpredictable events.

💡Business Continuity Plans

Business continuity plans are strategies to ensure that a company can continue its operations in the face of disruptions. The video includes these plans as part of operational risk management, highlighting their importance in maintaining business operations despite potential risks.

💡Regulatory Changes

Regulatory changes refer to modifications in laws or regulations that can affect how businesses operate. The script identifies regulatory changes as external events that can pose operational risks, necessitating that companies stay updated and adapt their practices accordingly.

💡Strategic Objectives

Strategic objectives are the long-term goals that guide a company's overall direction and strategy. The video explains that operational risk impacts should be evaluated in relation to these objectives, as they can affect a company's ability to achieve them.

💡Integrated Risk Management (IRM)

Integrated Risk Management is an advanced approach that uses software and technology to predict and manage risks across different areas of a business. The video discusses IRM as a technological advancement in operational risk management, allowing for more effective prediction and mitigation of risks.

💡Risk Mitigation

Risk mitigation involves采取措施来减少风险的可能性或影响. The video describes various strategies for mitigating operational risks, such as risk transfer, avoidance, acceptance, and control, emphasizing the importance of choosing the right strategy based on the specific risk and business context.

💡Workflow Automation

Workflow automation refers to the use of software to automate business processes, reducing manual work and the potential for human error. The script mentions workflow automation as a tool for managing operational risk by enforcing compliance with new risk mitigation procedures and streamlining business processes.

Highlights

Operational risk is the risk of business operations failing due to inefficiencies or breakdowns in internal processes, people, and systems.

Operational risk includes human error and external events such as regulatory changes.

Operational risk management is essential for business continuity plans, environmental risk, crisis management, and IT risks.

Operational risk can impact a firm's strategic objectives and bottom line.

Operational risk management is a continual process of assessing risks and implementing controls.

There are various types of operational risks, including fraud, criminal activity, workplace policies, and safety.

Operational risks can cause significant damage to a business, including loss, regulatory overhead, and reputational damage.

Operational risk management involves a comprehensive business risk assessment.

The process of operational risk management includes product suitability, market demand, and people risks.

Operational risk management has evolved to include integrated risk management (IRM) using software and technology.

Corporate leaders must create a culture that makes operational risk management a crucial part of their corporate value proposition.

Effective operational risk management can prevent unexpected operational loss and reduce compliance costs.

Operational risk management is beneficial for improving the reliability of business operations and decision-making.

There are three levels of operational risk management: in-depth, deliberate, and time-critical.

The four principles of operational risk management are: do not accept unnecessary risk, make risk decisions at the appropriate level, accept risk when benefits outweigh the costs, and integrate operational risk management into planning.

The operational risk management process includes risk identification, assessment, measurement, mitigation, and monitoring and reporting.

Risk mitigation strategies include risk transfer, avoidance, acceptance, and control.

Keys to reducing a firm's operational risk include task segregation, reducing complexity, reinforcing organizational ethics, and regular monitoring.

The seven-step approach to mitigate operational risk management includes task segregation, curtailing complexities, reinforcing ethics, assigning the right people, regular monitoring, periodic risk assessment, and learning from past incidents.

Operational risk management is crucial for the reputation and financial stability of a business.

Transcripts

operational risk and the management of

operational risks

welcome to the risk management of

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thank you

this video discusses operational risk

and the management of operational risks

in this video you will understand the

meaning of operational risk types of

operational risk impacts of operational

risk operational risk management the

benefits of operational risk management

how operational risk management works

operational risk management principles

operational risk management process keys

to reducing a firm's operational risk

and the seven-step approach to mitigate

operational risk management

now let us start

what is operational risk

operational risk is the possibility of

business operations failing due to

inefficiencies or breakdowns in a firm's

internal processes people and systems

human error and external events such as

regulatory changes are common sources of

such risk the basel committee on banking

supervision has described the

operational risk as the risk of loss

resulting from inadequate or failed

internal processes people systems or

external events as such operational risk

captures business continuity plans

environmental risk crisis management

process systems and operations risk

people-related risks and health and

safety and information technology risks

all these risks need to be managed and

the more sophisticated the approach to

risk management the more chance the

business must thrive and grow

no business is immune to operational

risk

at any time in any business task or

process the risk may arise from internal

process failures or gaps human error

system failures or external risks

imposed by customers suppliers natural

disasters regulatory changes or

geopolitical shifts operational risk may

include legal risks risks to human

capital and physical business assets or

risks to the bottom line of the business

typically strategic and reputational

risks are not included in the definition

of operational risk but they may be

adversely impacted when operational

risks remain unchecked for too long

operational risk relates to the

production process

this includes the process itself the

asset base the people within any project

team and the legal controls within which

the organization operates

operational risk can be defined as the

risk of direct or indirect loss

resulting from inadequate or failed

internal processes people and systems or

external events

operational risk also effectively

includes anything that can impact the

organization's overall performance and

ability to create value operational risk

therefore includes events such as

mistakes or missed opportune at ease

the primary element of operational risk

management is that the organization's

control monitoring and assurance

activities should be based on a

comprehensive business risk assessment

that identifies and ranks risks by their

significance to the company in

determining significance the risks must

be evaluated in the likelihood and

impact on the organization it is this

latter aspect of the impact that needs

to be well defined

traditional measures have focused on a

financial value or the potential for

injury although these aspects must be

considered the primary consideration is

how the risk impacts the firm's

strategic objectives the process of

operational risk management includes the

product itself its suitability for

market demand marketing and sales and

delivery people risks include risks

associated with human resources and

staff development

legal risks include contractual issues

together with statutory obligations and

liability

types of operational risk

operational risk is associated with how

businesses function internally and

broadly cover the following categories

1.

fraud for example bribery misuse of

assets and tax evasion

2. other criminal activity for example

data theft and hacking 3. workplace

policies and safety for example

discrimination staff health and safety

4. products and business practice for

example product defects and market

manipulation

5. physical assets for example vandalism

natural disasters and equipment

maintenance

6. business disruption for example

utility down times and it system

failures and

7. process management for example

accounting errors data entry errors and

non-reporting

these risks present varying threat

levels to business from a minor

inconvenience to potentially putting its

very existence in jeopardy the company

should not underestimate the potential

impacts of operational risk

impacts of operational risk

if operational risks materialize they

may cause significant damage to a

business including

outright loss for example costs of

dealing with system failure and

processing error

regulatory overhead for example costs of

audits and mandated investigations and

reputational damage for example arising

from fraudulent activity and unfair

practices

contrary to other types of business

risks operational risks are not

typically revenue driven or willingly

incurred some organizations accept them

as an unavoidable cost of doing business

however an organization can reduce its

risk exposure and operating costs by

developing a sound operational risk

management strategy for its business

operational risk management

operational risk management is a way to

get a holistic view of a company's risk

footprint throughout the supply chain

and everyone across the organization has

a role to play in making an

organization's safety culture the best

it can be operational risk management is

a methodology for organizations looking

to put real oversight a nd strategy into

place when it comes to managing risks

every business face circumstances and

changes in their situation that can be

perceived as presenting varying levels

of risk to that business from minor

inconveniences to potentially putting

its existence in jeopardy operational

risk management is a continual process

of assessing risks and implementing

relevant controls that lead to either

acceptance mitigation or avoidance of

risk it is however necessary to

understand the nature of a business and

associated risks to ensure sound

operational risk management this

understanding will help the organization

identify assess monitor and adequately

control or mitigate the risks

to achieve organizational operational

risk goals companies must work together

to mitigate risk and that includes a

need for

1. corporate leaders make safety part of

their value structure by initiating and

driving a safety culture throughout the

organization

2. engineers to apply inherently safe

design principles

3 maintenance engineers to verify

isolations while reliability engineers

maintain asset up time

4. operators to start up shut down and

respond to abnormal conditions

5. procurers suppliers and transporters

to understand their contribution to

delivering and managing quality spare

parts materials and services that

prevent the loss of containment

operational risk management has evolved

to become much more technologically

advanced which has led to the concept of

integrated risk management irm

integrated risk management is where

software and technology work together to

help organizations predict where their

most significant risks might be while

connecting different risk mitigation

areas through cloud technology

integrated risk management can also

offer companies prescriptive advice to

determine the leading indicators to help

them mitigate incidents before they

occur

corporate leaders must create a culture

that makes operational risk management

mitigation strategy a crucial part of

their corporate value proposition doing

so will help firms to keep their people

safe their products sustainable and

their operations productive

effective operational risk management

can also help a business organization to

1. prevent unexpected operational loss

to

cut compliance or auditing costs

3. detect unlawful activities and

4. minimize exposure to future risks

benefits of operational risk management

operational risk management is

beneficial to business organizations

operational risk management is an

essential step for every company that is

looking to avoid potentially damaging

issues benefits of operational risk

management include

1.

improvement of the reliability of

business operations

2.

improvement of the effectiveness of the

risk management operations

3. strengthening of the decision-making

process regarding the management of

risks

4. reduction in losses caused by poorly

identified re sks

5. early identification of unlawful

activities

6. lower compliance costs

7. reduction in potential damage from

future risk show operational risk

management works

the first stage of any operational risk

management strategy is understanding the

nature of a business and its risks

manage a company that runs water ski

lessons the business will be susceptible

to risks different from that of a

company that creates technology for

vending machines

worrying about risks that are not

related to a business amount to a waste

of time

there are three levels of operational

risk management that an organization can

adopt

1.

in depth as the name suggests this is

the kind of risk management that we

would all be undertaking in an ideal

world as it will deliver the best

results and practically makes risk a

thing of the past not wholly because not

every risk is foreseeable

2. deliberate this is still not a panic

station in the world of risk management

but is undertaken at various stages

during the life cycle of a project or a

business and can come in the form of

routine safety checks or performance

reviews

3.

time critical this kind of operational

risk management often requires urgent

attention during operational change it

is usually done when there is a limited

time to act before the potential

consequences of unknown risks start

manifesting

operational risk management principles

four essential principles govern all

actions associated with operational risk

management the four principles of

operational risk management apply to all

tasks and operations at all levels of

responsibility within organizations

1. do not accept unnecessary risk

unnecessary risk has no commensurate

return regarding benefits or

opportunities everything involves and

implies risks the most logical choice

for accomplishing an operation should

meet the minimum acceptable requirements

the corollary to this axiom is accept

necessary risk which is required to

complete the operation or task

successfully

2. make risk decisions at the

appropriate level anyone can make a risk

decision however the appropriate

decision maker is the person who can

allocate the resources to reduce or

eliminate the risk and implement

controls the decision maker must be

authorized to accept levels of risk

typical of the planned operation

including equipment's wear and tear and

loss of operational effectiveness he

should elevate decisions to the next

level in the management chain by

ensuring that the available control will

not reduce residual risk to an

acceptable level

3. accept risk when benefits outweigh

the costs cost implications of all

identified benefits should be assessed

before accepting operational risks for

instance high risk endeavors may be

undertaken when the benefits exceed the

total costs

balancing costs and benefits is a

subjective process and ultimately the

balance may have to be arbitrarily

determined by the appropriate decision

maker

for integrate operational risk

management into planning at all levels

risks can be easily assessed and managed

at the planning stages of an operation

subsequent changes can be made during

the planning and implementation of

operations this is because both planning

and operational risk management are

continuous processes

operational risk management process

there are five stages of operational

risk management risk identification risk

assessment measurement and mitigation

and monitoring and reporting

step 1 risk identification

operational risks must be identified to

ensure effective management and control

risk identification starts by

understanding the organization's

objectives risks represent anything that

prevents the organization from attaining

its objectives the identification

process should involve staff from all

levels of the business to ensure that

various backgrounds and experiences

generate a cohesive result

step 2 risk assessment

risk assessment is a systematic process

for rating risks of likelihood and

impact the outcome from the risk

assessment is a prioritized listing of

known risks the risk assessment process

may be like the risk assessment done by

an internal audit the assessment step

entails applying quantitative and

qualitative measures to determine the

level of risk associated with specific

hazards the risk assessment process

defines the probability and severity of

an accident resulting from the hazards

based upon the exposure of humans or

assets to the hazards step 3 risk

mitigation

the risk mitigation step involves

choosing a path for controlling the

specific risks the company should

investigate specific strategies and

tools that reduce mitigate or eliminate

the risk all risks have three components

the probability of occurrence the

severity of the hazard and people and

equipment's exposure to the risk

effective control measures reduce or

eliminate at least one of these

the analysis must consider the overall

costs and benefits of remedial actions

providing choices if possible in the

operational risk management process

there are four options for risk

mitigation risk transfer risk avoidance

risk acceptance and risk control

1.

risk transfer

risk transfer entails shifting the risk

to another organization the two most

common means for transferring are

outsourcing and insurance outsourcing is

a business practice in which a company

hires a third party to perform tasks

handle operations or provide services

it is worthwhile to emphasize that

management cannot wholly transfer the

responsibility for controlling risk when

outsourcing insurance entails ensuring

against the risk ultimately transferring

some of the risks financial impacts to

an insurance company a good example of

transferring risk occurs with

cloud-based software companies when a

company purchases cloud-based software

the contract usually includes a clause

for data breach insurance the purchaser

is ensuring the vendor can pay for

damages in the event of a data breach

the vendor should also have data center

to provide system and organization

control soc reports thereby reducing the

likelihood of a data breach

2. risk avoidance

avoidance prevents the organization from

entering accepting a risk

risk avoidance eliminates hazards

activities and exposures that can

negatively affect an organization's

assets for example when choosing a

vendor for a service the organization

could accept a vendor with a higher

priced bid if the lower cost vendor does

not have adequate references while risk

management aims to control the damages

and financial consequences of

threatening events risk avoidance seeks

to avoid compromising events entirely

while the complete elimination of all

risk is rarely possible a risk avoidance

strategy is designed to deflect as many

threats as possible to avoid the costly

and disruptive consequences of a

damaging event a risk avoidance

methodology attempts to minimize

vulnerabilities that can pose a threat

risk avoidance and mitigation can be

achieved through policy and procedure

training and education and technology

implementations

3.

risk acceptance

risk acceptance is a concept where an

individual or business identifies risk

and renders it acceptable thereby making

no effort to reduce or mitigate it the

potential loss from the identified and

accepted risk is considered bearable by

comparing the risk to the cost of

control management could accept the risk

and move forward with the risky choice

risk acceptance is a reasonable option

for small and infrequent risks because

they are not catastrophic or expensive

hence there is no critical need to

manage them the impacts of such

uncertainties are usually bearable and

accepted as part of the operations and

treated as they occur

4. risk control

controls are processes of an

organization to reduce the impact of a

risk to increase the likelihood of

meeting the corporate objectives

for example installing software behind a

firewall reduces the likelihood of

hackers gaining access while backing up

the network reduces the impact of a

compromised network

step 4 implement risk control

once the risk mitigation choice

decisions are made the next step is

implementation management must formulate

a plan for applying the selected

controls by ensuring the availability of

resources including materials and

personnel to facilitate a robust

operational risk management framework

the control rationale objective and

activity should be well documented to

communicate and execute the controls the

controls implemented should focus on

preventive control activities over

policies

step 5 monitoring and review

once controls are in place the process

must be monitored and reviewed regularly

to ensure their effectiveness control

monitoring involves testing the control

for appropriateness of design

implementation and operating

effectiveness any exceptions or issues

should be reported to the management to

established necessary action plans

workers and managers at every level must

fulfill their respective roles to ensure

that the controls are well maintained

the operational risk management process

continues throughout the life cycle of

the organization keys to reducing a

firm's operational risk

the proposed mitigation strategy for

most risks usually includes creating new

business processes or adjustments to

existing processes some businesses

promulgate new policies and procedures

by email in the immediate aftermath of

an incident that impacts operational

risk in the crush of their daily tasks

even the most willing and motivated

employees often forget the new rules

businesses that have already embraced

workflow automation can easily create

new workflows alter approval

requirements and create monitoring

dashboards so that compliance with

operational risk management procedures

is ensured the system enforces

compliance with the new risk mitigation

procedures

when defining new workflows to deal with

specific operational risks there are a

few guiding principles to keep in mind

1.

identify and divide tasks

list the necessary steps for eliminating

a particular risk if a single individual

or role is currently performing them

divide the tasks so that one role

performs the tasks and another role

checks or approves the result of the

task

2. assign tasks to the right people it

is good to assign tasks to the right

employees to achieve a firm's objectives

the company must not be so aggressive in

trying to level workloads and tasks

assigned to employees who are not

trained or unwilling to accept

additional responsibilities

3. streamline and automate business

processes

operational risk can be reduced by

automating business processes the

company should replace internalized

judgment with data-driven business rules

to eliminate significant sources of

human error

4. brainstorm the exceptions

many risk events stem from the

unforeseen exception situation not

examined during the initial business

process design

rush orders sudden staff departures

receipt of substandard raw materials

missed steps during the business peak

season or product recalls are some of

the accepted situations that may

introduce operational risk if no formal

processes are in place

5. measure performance and exceptions

data is crucial because it provides

businesses with the means of validating

their initial risk assessment is the

frequency and impact severity in line

with what the company initially

anticipated is the current mitigation

strategy working or does the company

needs to tweak it are some individuals

or departments better than others at

reducing this risk or should the company

change its initial decisions if the

company is served with a lawsuit or face

government review because of a

particular risk a firm's historical data

is often crucial to minimizing fees

judgments and fines

6. adopt an ongoing approach

risk assessment is only meaningful in

the context of the current business

situation last year's risks and

mitigation strategies may now work in

today's world the company should review

its risk assessment regularly quarterly

semi-annually or annually if the company

needs to tighten or loosen some of its

corporate rules or change its workflows

this can be accomplished quickly with

the workflow automation tool

the seven-step approach to mitigate

operational risk management

operational risks impact the reputation

and financial stability of a business

significantly lack of robust risk

mitigation strategy will result in

various operational failures leading to

crises in organizational management that

is why many businesses invest in

designing a robust risk management

framework essentially operational risks

are best discovered controlled and

mitigated using a seven-step approach it

supports multiple facets and can

alleviate numerous risks concurrently

here is the seven-step approach to

mitigate operational risk management

one

task segregation effective segregation

of tasks and duties reduces internal

theft and risks related to fraud this

prevents an individual from taking

advantage of the numerous aspects of

transactions and business processes or

practices

2. curtailing complexities in business

processes reducing complexity in

different business processes mitigates

operational risks

organizations can achieve this by

curtailing manual activities and the

number of people and exceptions during

business processes

3. reinforcing organizational ethics

creating strong organizational ethics is

essential to mitigate operational risk

and ensure a robust operational risks

management framework organizational

ethics can be reinforced by combining

the workforce's values and principles

with the organization's ideology

4. the right people for the right job

having the right people in the right

jobs can reduce business process

execution and skill and technology

usage issues having the right people in

the right jobs will also result in

appropriate workforce utilization

adherence to timelines enhanced quality

fewer errors and process breakdowns

5. regular monitoring and evaluation

business processes are more effective

with well-designed performance

indicators in place key performance

indicators kpis are critical for timely

detection and mitigation of risks

hence the need for continuous monitoring

and review to identify discrepancies and

be proactive in managing them

6. periodic risk assessment periodic

assessments of all operational risks

ensure a robust operational risk

management framework it is imperative to

be risk ready by ensuring regulatory

compliance i.t assets skills

competencies processes and objective

business decisions

7. look back and learn risk incidents

and remedial activities employed in the

past will help build effective

strategies to counter future risks

previous risk occurrences will help an

organization to implement a more robust

proactive operational risk management

framework it also supports real-time

amendments that suit the current

operating scenario

conclusion

operational risk and management risk

management have been discussed in this

video operational risk is the

possibility of business operations

failing due to inefficiencies or

breakdown in internal processes people

and systems human error and external

events such as regulatory changes are

familiar sources of such operational

risk

if operational risks materialize they

can cause significant damage to a

business operational risks can also

impact the reputation and financial

stability of a business significantly

hence it is essential to manage the

operational risk exposure of a business

effectively operational risk management

is a continual process of assessing

risks and implementing relevant controls

that lead to either acceptance

mitigation or avoidance of risk

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